WB warns against easy money

New Delhi, Dec. 4: The World Bank president, Mr Robert Zoell-ick, said on Friday that excess liquidity in global markets is driving up prices of agri-commodities and this could be potentially dangerous in the near term.

“I am somewhat concerned with a lot of liquidity in global markets,” said Mr Zoellick said.

As the interest rate are near zero, the investors are putting borrowed money in various assets classes raising concerns about possible asset bubbles.

In India, the food prices have hit a peak level. The food inflation was a high of 17.47 per cent for the third week of November.

“RBI could take action after watching the behaviour of prices in December to restrain liquidity. The RBI might start by reducing the liquidity in the system,” said the Prime Minister’s Economic Advisory Coun-cil chairman, Dr C. Rangarajan, on Friday.

“Though food inflation must be primarily handled through supply management, there is a role for monetary policy as well. In the period of scarcity if the money supply growth is very strong, it will also aggravate the food inflation,” he added.

Mr Rangarajan was of the opinion that fiscal and monetary accommodative policies may have to be withdrawn slowly in the coming days due to high fiscal deficit and rising inflation.

The price of potatoes is up by 94.17 per cent, onions by 30.89 per cent, pulses by 37.83 per cent, vegetable by 20.40 per cent, rice by 12.33 per cent and wheat by 11.97 per cent.

Mr Zoellick said India’s strong crisis management and the sustained global demand from this $1.2 trillion economy is playing an important role in helping the world recover from the global economic crisis.

“We all look to India now as a rising global economic power and in our interconnected world it has played a helpful role over the tough moments of the past year, not just during the discussions of the G-20,” said Mr Zoellick.